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Retiring young: Is 50 really the new 65?

Retiring in your 60s is considered by many as the right time to give up work for good.

Out of 8,000 people surveyed by the Australian Bureau of Statistics for the most recent Retirement and Retirement Intentions data release (May 2020), the average age people said they intended to retire was 65.5 years.

But, what about those who are currently in the workforce and are targeting an ‘early’ retirement?

The same ABS data release revealed that the average retirement age in 2018-19 was 55.4 years – considerably earlier than the ‘average’ intended retirement age.

This poses an interesting question: is early retirement an achievable reality for the masses – particularly in the current volatile economic climate – or is it just a pipedream, reserved for the lucky few?

For the purposes of this article, “early retiree” refers to a person who has, or intends to, permanently cease employment earlier than 55.4 years – the average retirement age in 2018-19.

Aspiration vs reality

In October 2022, an independent survey commissioned by finance platform money.com.au found that roughly a quarter (26%) of people aged 35-44 want more than $100,000 annually during their retirement (this is compared to only 20% of 45-54-year-olds and 10% of 55-60-year-olds).

Early retirees would arguably have an extended ‘active’ phase of retirement, meaning they’d have additional time to enjoy things like exercise, hobbies, overseas travel, home renovation, volunteering, and family gatherings.

The fact that these people would be spending more money on leisure items and activities for a longer period is surely reflected by the younger survey respondents’ desire for an annual retirement income in excess of $100,000.

The risk associated with this, of course, is that people burn through their savings during their early retirement, without budgeting for non-discretionary items – food, medical bills, housing – in later life.

Longevity risk is a crucial consideration for anyone entering retirement, regardless of their age. Significant social and medical advancements mean that Australians are living longer, healthier lives, which require more financial resources – people are living longer, so individuals need more money in retirement.

A healthy Australian retiree at 50, for example, could be expected to live well into their 80s, meaning that individual would need to be assured of more than $3 million ($100,000 x 30 years) to comfortably fund the remaining years of their life.

Interestingly, the Australian Government is currently proposing doubling the tax rate on earnings from super investments for balances above $3 million. The proposed changes would see the tax rate rise from 15% to 30% for people who are still adding money to their superannuation. If implemented, this tax change would need to be an additional key consideration for those considering early retirement.

As a broad rule, Australians can access their superannuation from 65 years old, or when they reach the preservation age – depending on the year they were born – so, our 50-year-old retiree would have to live self-funded for at least 15 years before a superannuation income stream became a reality.

Given that the household savings ratio (via ABS) was 6.9% for the June-September 2022 quarter – and 90% of all employees reported earning less than $2,720 per week (90th percentile) – the reality of a self-funded early retirement may be a stretch for many.

Opportunity exists

Despite the challenges, there are genuine opportunities for savvy individuals to retire before their peers. Factors like longevity risk – as well as other variables like inflation and interest rate fluctuations – will always exist, but these can be mitigated with appropriate strategies.

In the case of those aspirational early retirees, there may be additional considerations before permanently leaving the workforce. Some suggested considerations are highlighted briefly below, though individuals are encouraged to consider their own personal circumstances.

1. It’s important to determine lifestyle

It’s often hard to plan next month’s activities, let alone those in 10 years’ time; however, deciding on the kind of life you want to live post-retirement is seen as the essential, foundational step to preparing for early retirement.

2. Planning is essential

Once you’ve settled on your chosen lifestyle choice, a comprehensive retirement plan is a good next move – this involves laying out everything from potential timelines to mock budgets, and more. According to the Australian Government’s Retirement planning, saving and attitudes: survey report 2020, only 32% of respondents had a retirement savings goal – this is despite a wealth of resources available to assist you in planning your financial future.

3. Evaluate your current situation

Examine your current financial situation. Once you’ve decided on your lifestyle and created a plan, you can work forward by evaluating your financial situation; your starting point. Be realistic in your assessment.

4. Determine your retirement age

At the completion of these first three steps, you may have enough information to determine the age at which you can retire and live the life you want.

5. Budget, budget, budget

Almost half (47.1%) of Retirement planning, saving and attitudes: survey report 2020 respondents said they don’t have enough income to save for the long-term – including their retirement. ‘Tightening the belt’ by budgeting, reducing expenses, and cutting out luxuries is a critical step if early retirement is your goal. Paying off debt early is another key consideration when reducing your expenses.

6. Earn more money

Easier said than done, yes, but increasing your income can be the difference between retiring at 60 or retiring five years earlier. Additional income streams might include investing wisely in shares or property that is likely to appreciate – as well as income-producing assets.

With high inflation rates presently impacting savings, having a diversified investment portfolio can be seen as a smart way to mitigate investment risk – and a way to make your money work for you as you prepare for retirement. Commercial property, for example, is regarded as an inflationary hedge – and tends to fare well in times of high inflation.

The Retirement planning, saving and attitudes: survey report 2020 revealed that roughly 35% of respondents invest their savings in other ways than super, though only 8.3% of respondents expected shares or a property portfolio to be their highest valued asset when they retire.

7. Track your progress

There’s no use setting a plan in motion if you don’t know where you are on the journey! Regular, routine progress checks allow you to pivot your plan of action if required, and let you know whether your tactics are working.

While early retirement may not be the norm – only 2.3% of Retirement Planning Survey (2020) respondents say they intend to retire between 50 and 54 – it certainly is achievable for those who plan to make it happen.

 

Peta Tilse is Head of Retail Funds Management at Cromwell Funds Management, a sponsor of Firstlinks. This article is not intended to provide investment or financial advice or to act as any sort of offer or disclosure document. It has been prepared without taking into account any investor’s objectives, financial situation or needs. Any potential investor should make their own independent enquiries, and talk to their professional advisers, before making investment decisions.

For more articles and papers from Cromwell, please click here.

 

22 Comments
Aaron Minney
March 29, 2023

Peta
The 55.7 average age of retirement, like many statistics is misleading. It was not the average age of retirement in 2018-19.
55.7 is the average age that someone last worked of all people who were retired in 2019 (and over 45). It is a measure of the 'stock' of retirees, not the 'flow' of new retirees. It actually includes some people in their 80s who 'retired' by definition in their 20s because they had to cease work on getting married (this rule applied in the public service up to 1966) and never returned to the workforce.
A better statistic on what is happening today is in table 3.1:
The average age at retirement for someone who has been retired for up to 5 years (after 2013/14) was 62.7- much closer to the expected age.
It also notes that for people who have been retired for more than 25 years was only 41.3 (189,300 men retiring at 49.7 and 574,500 women who 'retired' on average at 38.5)

Acton
March 27, 2023

What is not mentioned is the frugal living and outright home ownership of the generation before us, meaning that many people stand to inherit a valuable home and the accumulated lifetime savings of their parents and parents in law. This then determines their own retirement timing and plans. Some of us regard ourselves as mere custodians of family wealth and intend to live off it, grow it and in due course pass it on.

C
March 24, 2023

Some of those who retire at the stated average age of 55 may well have partners still working full time to support them, but on their own could not afford to retire.
Like my wife who has retired from paid
employment at 52

Lyn
March 24, 2023

.... " a pipedream for the lucky few " , finances apart, if one enjoys job stay, take sabbatical/long service/unpaid leave, try before buy, for a year so no buyer remorse. The pipedream of retirement at any age may not be what cracked up to be. Losing structure to day can be debilitating to some once all pipedream things done & then a chore of ' what will we do today '. Haven't there been studies of seemingly fit people retiring,18mths later wham drop dead, recall stats more men than women for whatever reason. Only today heard someone back to work after year as it bored the clever, active person in mid-60's & lack of purpose.

Harvey
March 24, 2023

$100k is not needed in requirement for 90% of us. Retire 5 years earlier and enjoy life. And the retirement industry never tells you whether the annual comfortable retirement income is pre or post tax. Because it's in their interest.

Mark
March 24, 2023

That's really a given as the average balance of a a retiree is not enough to fund a $100k retirement yet 1000's retire each year on less.

Lifestyle in retirement comes down to a multiple of factors, lifestyle/income prior to retirement, whether you have children or not and intend to leave them money on your passing. Whether you will use earnings and capital to finance retirement and of course how much you have when you retire.

Then there is the pension, if you have too much to get pension will you spend capital at a fast rate for a couple years from say 60 to 67 so you qualify for pension. Will you pass on the obligations to get the pension and stay fully self funded. I think genetics should be considered as well. Bar accidental deaths in family history and most of your family have lived to ripe old age, odds are you will live a long life. If you're family history is if many dying at 72 from medical/disease complications, odds are against you. I can't wait to retire at 60. I work with a guy that is 67 and has no intention of retiring, he does not need the money, however he views work as his social interaction. When it comes to retiring or not retiring, do what you feel is best for you. Embrace either opportunity, some don't get a choice. They have to keep working for whatever reason or they pass before they even get there.

Michael2
April 04, 2023

Yes, I do miss the structure of work, but I wasn’t in a job I wanted to do so would I leave that employer again, absolutely, even if it meant no income, 60 years old is too old to work for a company you don’t like what they do

Rennie
March 24, 2023

I'm a 53 year old female who bought their first home at 19,and had it paid off at 32. I was always saver, I was on a basic wage. I spent a lifetime reading investment books, and picking up tips where I could. I bought an investment property 10 years ago and will have that paid off shortly. I started managing my own super 3 years ago, best thing I ever did. I now work part-time and hope to retire shortly. Start saving young, be sensible with investments, and have a bit of fun along the way. The secret is - Make A Start, don't waste time putting investments off for another day.

Dudley
March 23, 2023

Oodles written on likely success rate of initial capital to withdrawal rate, age, longevity, ... 'Forecasts' about the past mostly.

Estimation of the minimum retirement start to life expiration rate of return required by explicit starting and ending capital and withdrawal rate is quick and easy:

Example:

To 90 from 60, withdrawing equal to age pension, starting with $5000000 invested, expiring with Age Pension cut-off Assessable Assets (never receiving Age Pension), inflation 7.8%:

Minimum real return:
= RATE((90 - 60), (26 * 1547.6), -5000000, 954000, 0)
= -3.52% (- = continual loss)

Minimum nominal return:
= (1 + RATE((90 - 60), (26 * 1547.6), -5000000, 954000, 0)) * (1 + 7.8%) - 1
= 4.01%

Great precision is unlikely to be more accurate.

Your metre-age will vary.

Peter
March 23, 2023

Retiring early is achievable and it can be an interesting mental challenge working how to do it. When I was at school I was introduced to the "Financial Independence Retire Early concept and the principles of building wealth by a teacher in secondary school economics. Immediately the ideas appealed to me. I am now 35 and I have relentlessly pursued these goals. I invest every month , reinvest dividends and have a side hustle which I really enjoy. Already I have the financial capacity to retire 14 years before the official retirement age of 67 without relying on a govt pension . I feel happy, secure and relieved that what ever challenges my work life throws at me I can manage it with the assets that I have accumulated. Financial independence is certainly a goal worth aiming for.

Life choices
March 23, 2023

Goodness, I’m average! I retired 2018-2019 aged 55. A fortunate life.

Rob W
March 23, 2023

I fully retired 7 years ago aged 52.
My preservation age is 59 but I won't be accessing super until 60. My wife and I own our home in regional Vic and have lived quite comfortably since then (off investment income of around $85k pa) however this will increase by about $100k pa when we both access super income streams.
I should also add I'm a Peter Thornton devotee (even though I've never met the man) and have been invested ~90% in CBA, COH and various LICs for about 20 years (including throughout GFC and pandemic ructions). It can be done.

Mart
March 27, 2023

Rob - congratulations, and it may interest you to know that Peter T is just commencing a series of one day presentation / discussion events around Australia. 

Mark
March 23, 2023

My preservation age is 60 and I fully intend to retire then. I do fear the government will raise the preservation age before then. Going by their previous amendments to Superannuation, I don't believe it is a fear that is unwarranted.

If they do raise preservation age, hopefully they leave the current TTR for me at 60. I'll semi retired and deliver pizza 4 hours a week.

James
March 23, 2023

"As a broad rule, Australians can access their superannuation from 65 years old, or when they reach the preservation age – depending on the year they were born – so, our 50-year-old retiree would have to live self-funded for at least 15 years before a superannuation income stream became a reality."

At present the oldest preservation age is 60, meaning one can access their super if they "retire". So 10 years wait not 15.

AMAC
March 23, 2023

Exactly - came here to say the same thing! Very strange how this fundamental fact has been quoted incorrectly!

John
March 24, 2023

Ditto. There's still a common misconception that super can't be accessed until the age of 65. Most of us interested in this topic are informed of the conditions of release required to cross into pension mode aged 60 (or earlier) and I'd expect financial journalists to be similarly well informed.

Stan
March 24, 2023

Same. If the article is about early retirement why suggest otherwise?

Mark
March 24, 2023

The author is aware of the preservation age aspect and mentions it. In context of their whole article he implies that it is a moot point as most people can not afford to retire at 60.
Telling the ATO you're retiring to get your Superannuation and then going back to work is not retiring.

Jay
March 24, 2023

"At present the oldest preservation age is 60"

I don't trust this current government to keep it at 60 - even grandfathered for those nearing 60.

Mark
March 24, 2023

I'm 4 2/2 years away from preservation age and having 2 avenues of early retirement using my Superannuation taking from me by legislation changes, raising of preservation age before I get there is a genuine concern.

If they leave the TTR at 60 I'll work with that though the option of fully retiring at 60 has more appeal.

Sean I
March 26, 2023

I see little reason to fear an increase in the preservation age beyond 60 given how deeply unpopular it would be politically and for what gain?

What is far more likely is reduced access to the age pension through reduced indexation of income and assets test thresholds and eventually reduced indexation of the age pension itself under the guise of "data shows pensioners expenses don't increase with CPI/AWOTE and therefore age pension benefits don't need to be indexed at that rate." If people are struggling, they will be directed to use the Home Equity Access Scheme. If they don't own a home, they'll get exactly as much care from the government as they do now: none.

The previous preservation age restrictions were legislated over 20 years ago and are only now in their final year of transition.

 

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